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Innovation in social entrepreneurship: How social enterprises innovate in

their organization

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Bento, P. (2015). Innovation in social entrepreneurship: How social enterprises innovate in

their organization. Paper presented at the 8th Annual Academy of Innovation and

Entrepreneurship Conference, Ryerson University, Tsinghua University and University

of Oxford, August 20-21, 2015. Toronto, Ontario, Canada.

Innovation in social entrepreneurship: How social enterprises innovate in their

organization

Abstract

We examined how social enterprises are innovative in their organization, in order to pursue

their mission and remain sustainable in the long-term. With the objective to investigate the

innovation in social entrepreneurship, in the component organization, it was developed research

of social enterprises, regardless of their location - worldwide - and made a selection (taking into

account their activity, size and relevance). Thereafter, it was constituted a database, and a

questionnaire, tested, and placed to nearly 1,300 social enterprises of various sizes and parts of

the globe, having been received 254 responses that resulted in 106 validated responses, which

were considered for the later stages of this work. Research and study of the most relevant

theory were performed. In what concerns to innovation in the organization, we find the

following performance in terms of respondents who agree moderately, very or completely that

their social enterprises innovate: in the form of organization, 54%; in the methodology to

encourage volunteers, 64%; in the training plan, 73%; in the motivation plan, 48%; in the

compensation and incentives plan, 49%; and in the model to support communities, 78%. The

1
data point to less innovation in the form of organization, in the compensation and incentives

plan, and in the motivation plan.

Keywords

Innovation, social entrepreneurship, organization

INTRODUCTION

Research object

This paper has as its object of research innovation in social entrepreneurship, with the study of

social entrepreneurship cases from various parts of the world. For its realization, we questioned

a number of social enterprises having as selection criteria its activity, size and relevance to the

research.

We intend to identify and study:

• The innovation in the component organization.

2
Analysis model

Research areas; concepts, dimensions and indicators

We considered as a focus for research, the study of innovation in the organization in social

entrepreneurship. Using the study of literature, we built the concepts, dimensions and indicators

contained in the analysis model (Table 1).

For the social enterprises studied, our research was guided by the question:

• What are the existing innovations in the dimension: (a) organization and business

model?

Table 1 - Concepts, dimensions and indicators

Source: Built from the Theory.

3
ADDED VALUE

This work has the added value of knowledge on innovation in the organization developed by

social enterprises. As a source for the development of theory and its application - in the fields

of entrepreneurship and social entrepreneurship -, it has as its main beneficiaries:

• Academics: teachers, researchers, and research centers.

• Professionals: entrepreneurs, social enterprises, and incubators.

• Politicians: entities, organizations, and policy makers.

• Other stakeholders, organizations, or interested in general.

Social entrepreneurship has contributed significantly to both the economy as the

society, worldwide, a trend that is expected to continue and lead to a growing consideration by

the political power. At the academic level, research is still in its infancy (Hu, Frank, & Cohen,

2011), with several authors considering that more scientific literature on social

entrepreneurship is needed, at the same time referring to the growing momentum in the creation

of social enterprises.

To Moss, Lumpkin and Short (2009) it is required more effort in quantitative and

qualitative research, and case studies, for the production of theory related to social innovation,

given the large number of settings, in many different cultural and economic environments.

In studying relevant social enterprises from different parts of the globe, we are gaining

knowledge that could well be crossed as a basis for advances and more effective and efficient

practices, thus enabling increased results through a better use of resources.

4
THEORY

This part is dedicated to the state of the art in the areas of knowledge directly related to the

issue and the problem of this paper.

The research strategy was to find and study the most important theory in academic

articles, books, reports, dissertations, theses, web pages, and other documentation.

We can start by the definition of entrepreneurship attributed to French economist Jean-

Baptiste Say, who in the nineteenth century, considered as the transfer of resources from one

area to another, more favorable, in which it is possible to get a positive differential in terms of

results; to this definition Joseph Schumpeter added, in the twentieth century, the function of

improving or changing completely determined production pattern (Dees, 1998).

Social entrepreneurship appeared in the late 70s of the twentieth century, coinciding

with the rise in unemployment and the decline in economic growth rates that occurred in that

decade (Borzaga & Defourny, 2004: 352-353). Certo and Miller (2008) argue that the strongest

element to define social entrepreneurship has been its ability to combine traditional business

elements and volunteering, which can be, at the same time, the biggest obstacle to the very

definition.

The definition of social entrepreneurship is undertaken, in general, from the definition

of commercial entrepreneurship, to which we must add a social mission and an alignment

between the economic and social aspects (Dees, 1998).

Entrepreneurship has been the driving force for the growth of businesses, and social

entrepreneurship has fulfilled this role in addressing social problems (Noruzi, Westover, &

Rahimi, 2010), allowing to solve problems that government initiatives do not address,

5
generating impact in a scalable and sustainable way (Dees, 2007) in areas such as health,

education or housing (Urban, 2008), and may call for changes in the dominant policies, through

the defense of decent work, or the promoting of action with ethics (Davis, 2002).

The need to reduce the funding on the basis of taxes for Non-Governmental

Development Organizations (NGDOs) paves the way for the social entrepreneurship and social

innovation (Fowler, 2000) solve social problems not solved by private companies or by the

governments (Lasprogata & Cotton, 2003), emerging as an alternative and/or complement to

the action developed by governments or international organizations in the fight against poverty

(Seelos, Mair, Battilana, & Dacin, 2011) and helping to stimulate economic and social growth

(Joshi, Tiwari & Joshi, 2007). Entrepreneurship and the growing importance of knowledge

management are relevant components of changes in the economies of Western countries

(Jacquinet, 2008).

It is interesting to verify different scenarios of social entrepreneurship according to the

different countries and regions of the globe. For example, in Southeast Asia social

entrepreneurship is being a way of contributing to the development, through the social

inclusion, empowerment, intermediation and mediation of existing resources (Decanay, 2006).

The study of social entrepreneurship is situated at the confluence of several disciplines,

including the management and social sciences (Jones, Warner, & Kiser, 2010), having to take

into account aspects such as the recognition of opportunities, innovation, action with limited

resources, the development of sustainable business models or the measurement of social impact

(Brock & Steiner, 2009), a joint knowledge of business, public organizations and nonprofit

(Young & Grinsfelder, 2011), and contemplating the following three different logics,

6
sometimes competing among themselves, (1) social well-being, (2) trade and (3) public sector

(Pache & Chowdhury, 2012).

Cantillon (1755) considers entrepreneur someone who buys raw materials at a price

known to sell at a price not yet known, thus taking the risk and the position of intermediary and

promoter of transformation. The word entrepreneur comes from the French word entrepreneur

that can be decomposed into between (identical meaning to the English word) and preneur

(meaning borrower) getting thus between borrower or intermediary (Filion, 2011).

The profile of the social entrepreneur, in addition to the typical characteristics of the

entrepreneur (in terms of innovation, talent and looking for opportunities to create change with

added value), has the specificity of its mission to be social (Dees, Emerson & Economy, 2001:

17). Smith and Stevens (2010) argue that the following three types of social entrepreneurs have

different levels of geographic scope of its activity: (1) the social bricoleur - going up to the

level of the local community, (2) the social constructionist - regional or national action, and (3)

the social engineer - at the transnational or global level. The role of social entrepreneurs is very

relevant to the communities they serve, through business models and creative solutions,

contributing to the resolution of complex and persistent social problems, establishing social and

economic goals (Dorado, 2006; Thompson & Doherty, 2006).

As for the definition of social entrepreneurship also the definition of social enterprise is

made, in general, from the definition of its commercial counterpart. According to the EMES

European Research Network, the social enterprise profile includes the activity of production or

commercialization of goods or services, with economic risk, through an autonomous structure,

being the enterprise started by a group of citizens, for the benefit of society, with the

participation of the people who will benefit from the activities, minimum paid work and a

7
limited distribution of profits (Defourny, 2001: 16-18). The main problems that affect social

enterprises are a heavy reliance on external financing and the need to meet and motivate groups

of volunteers and employees who are willing to develop their activity with salaries below the

average (Sharir & Lerner, 2006; Harding & Cowling, 2006).

Figure 1 - Social/commercial mission of the enterprise

Social enterprises differ from commercial enterprises mainly by two aspects: first, by

having a social goal (in order to achieve social outcomes more than financial) and, second,

because they act on the basis of a mixed commercial and social methodologies (Dees, Emerson,

& Economy, 2001: 8-9).

Three important factors for the sustainability of social enterprises are (1) the social

entrepreneur, (2) the networks, and (3) the support of governments and institutional entities

(Shetty & Shingi, 2009), being necessary to the growth of a social enterprise to take into

account the acquisition, development and human capital retention (Harris & Kor, 2013).

The business model continues to be an essential tool for companies, and must describe

how their components are intertwined around a vision of creation of value and in accordance

with a strategy (Magretta, 2002) and, in a scenario of increasing competition (by funds from

philanthropy or contracts with governments), it is essential for leaders of NGOs and social

8
entrepreneurs to have access to resources and to an organizational model that enable them to be

successful in their mission and generation of social value (Rangan, Leonard, & McDonald,

2008).

The social entrepreneurs must reconcile competitive advantage and the need to generate

profit with the creation of social impact, having as three main challenges (1) the financial

management of the social enterprise, (2) the management of the way to reach the goals of profit

and social value, and (3) the identity management of the social enterprise (Hansmann, 1987;

Tracey & Phillips, 2007).

Table 2 - People, context and business opportunity

Source: Built from the data of Sahlman (1996: 140).

9
 The model of social enterprises based on voluntary work and donations or grants, in

general, at some point you need to include a commercial component that allows another source

of income (Boschee, 2006: 356).

Plan, execute and control are necessary stages for both commercial and social

enterprises, and the measurement of performance of social enterprises is essential for an

adequate control of their activity, considering Ormiston and Seymour (2011) that entrepreneurs

should use more tools for the management of companies in measuring the social impact of their

projects. It is important that are found the tools and methods of social accounting to assess the

impacts of social enterprises (Dees, Anderson, & Wei-Skillern, 2002) still missing an adequate

metric to evaluate the results in social and environmental terms, and establish comparisons, for

example in financial terms (Nicholls, 2009), with universally accepted indicators to measure

the effects on the people concerned (Neck, Brush, & Allen, 2009).

ISSUE

Social Innovation is social "both in the means as in the purpose", with new ideas, which are

better than the alternatives in the satisfaction of social needs, creating value (Hubert, 2010: 22-

34). Linking innovation and entrepreneurship, innovation can be seen as the means that is

characteristic to entrepreneurs, allowing them to transform changes into opportunities for new

businesses, products or services (Drucker, 2006: 19). Drucker (1987) draws attention to the

need for executives to be more attentive to social innovations and their effects.

The continued growth of the population and the lack of resources and infrastructures,

characteristics of developing countries, generate opportunities for social innovation (Wang,

10
2012), and social innovation also appears as a response to the transfer to the communities (by

governments such as the United Kingdom) of the responsibility for resolution of their own

social problems (Chalmers, 2013).

Charities and other nonprofits have existed since the Middle Ages (Borzaga et al.,

2008). Social entrepreneurship can be considered as a way to solve social problems that

governments and philanthropic organizations do not solve (Dees, 1998).

While in the US and Western Europe social entrepreneurship exists more in the form of

NGOs, in Latin America and the Caribbean prevails the hybrid social entrepreneurship.

METHODOLOGY

Introduction

Having the objective to investigate innovation in organization in social entrepreneurship, social

enterprises survey was conducted, regardless of their location - worldwide - and made a

selection (taking into account their activity, size and relevance). From there, it was constituted

a database with the necessary information to follow-up the information gathering strategy, built

a questionnaire focused on obtaining essential information (contemplating the items in the

analysis model), with invitation for participation submitted by email to potential respondents.

In the context of the areas of knowledge directly related to the object of research and the

issue of the paper, research was carried out and study of the more relevant theory, including

academic articles, books, reports, dissertations, theses, pages on the Internet, and other relevant

documentation.

11
Data Collection Strategy

The construction of theory based on the study of cases has to be considered with several

strengths, such as to allow new theory, testing, and empirical validation, being suited to recent

areas within the research (Eisenhardt, 1989: 546-547), as is the case of social entrepreneurship.

Inquiry by electronic message

Meho (2006), based on the findings of 14 studies, argues that the electronic message

(expression replaced, in general, by electronic mail or, more often, by abbreviated form e-mail)

may be an alternative way to direct contact or the use of the telephone to obtain information in

qualitative studies. The e-mail, as well as the phone, facilitates access to certain individuals or

groups that would otherwise be difficult to reach (Lehu, 2004), a situation that applies to this

work, in particular by the high number of contacts and the wide geographical spread of social

enterprises studied, some in locations with quite different time zones.

The questionnaire was constructed with the aim of obtaining information about social

entrepreneurship, in the line of research considered.

12
Strategies of data processing and analysis

Ways to illustrate or support/strengthen the analysis, presentation of data or conclusions of the

research; quantitative and qualitative data analysis

The study is based on relevant cases, having been used tabs, charts, diagrams and analysis of

statistical data, as a way to illustrate or substantiate/strengthen the analysis, the presentation of

data, and the conclusions of the research. As defended by Carmo and Ferreira (2008: 270-277),

was used quantitative and qualitative analysis of data, in direct and indirect ways, with prior

definition of objectives, selection of documents and data to consider, formulation of categories

to check and analysis units, necessary data quantification and interpretation of the results

obtained; was taken into account verification of fidelity and validity of the content.

SUMMARY AND INTERPRETATION OF RESULTS

Profile of respondents

Social entrepreneurship requires knowledge of business, public organizations and non-profit

organizations (Young & Grinsfelder, 2011), from disciplines such as the social sciences and

management (Jones, Warner, & Kiser, 2010), in which special attention is given to the

generation of profit, traditional entrepreneurship commercial but also needed in social

entrepreneurship, to ensure the sustainable development of its social vocation (Pache &

Chowdhury, 2012). However, only close to 1/5 of the participants with university degree refer

13
Economics, Management and Accounting as their course area. The diversity of areas of courses

is in accordance with the connection between social entrepreneurship and fields as diverse as

sociology, political science or management, considered by Mair and Marti (2006) or Jones,

Warner and Kiser (2010), and components such as innovation and the development of

sustainable business models, or the measurement of social impact, mentioned by Brock and

Steiner (2009), covering logics as the social welfare, the trade and the public sector, referred to

by Pache and Chowdhury (2012), with knowledge of business and organizations (public or

non-profit), considered by Young and Grinsfelder (2011).

The variance higher is relative to other languages spoken and the area of the study of

respondents with university degree, meaning that are the components for which there is greater

dispersion of responses in relation to the average; the components for which this value is lower

are the translation of the questionnaire into English, gender, English language skills, and types

of involvement with the social enterprise studied.

The distribution of respondents by gender (53% female and 47% male) seems to be in

line with the mentioned by Hoogendoorn, Zwan and Thurik (2011), when considering the

greater likelihood of the social entrepreneurs are female.

Profile of social enterprises

The fact that we have: (1) to the involvement with the social enterprise 60% as full-time

professional, and 11% in self-employment or free scheme; (2) highest level of education

attained, 45% with master's degree or professional qualification, 34% with Bachelor's degree,

first University cycle, or equivalent, and none of the participants with any of the three lower

14
levels of education existing in response option; (3) in terms of experience, 18% with industry

career (15 years or more), and 22% with enough experience (5-10 years); (4) in antiquity with

the social enterprise, 13% with career made in social enterprise (15 years or more), 14% for a

long time (10 to 15 years) and 25% for a long time (5 to 10 years), shows that the questionnaire

will have been answered, in most cases, by people with directorial positions in the respective

social enterprises, which is also indicator of greater knowledge and credibility of the answers.

This information seems to point to that we are, in general, dealing with successful social

enterprises, on the basis of the variable with respect to the dedication of social entrepreneur for

the success of the company, referred to by Christie and Honig (2006) or Sharir and Lerner

(2006) and the variable profile and experience of previous management of the promoters of the

project for their success, referred by Sharir and Lerner (2006), as well as by the fact that they

have broader social networks and network ties that they develop more effectively, features of

entrepreneurs with more experience, as claimed by Mosey and Wright (2007).

Based on the responses to the question about the social mission of the company, and by

Zahra, Gedajlovic, Neubaum and Shulman (2009) we can see that we are dealing with a

majority of social entrepreneurs with the profile of social engineer (base theory attributed to

Schumpeter), situation more relevant in social enterprises with more than 10,000 workers, in

which represents the situation of all the companies.

Innovative aspects in the organization

In terms of innovation in the organization, we find the following performance in terms of

respondents that agree moderately, very or completely that their social enterprises innovate: in

15
the form of organization, 54%; in the methodology to encourage volunteers, 64%; in the

training plan, 73%; in the plan of motivation, 48%; in the compensation and incentives plan,

49%; and in the model to support communities, 78%.

Chart 1 - Innovative aspects in the organization

Source: Built based on the quantitative data from the responses.

The data point to less innovation in the form of organization, in the compensation plan

and in the incentives and motivation plan. It seems to be in accordance with the difficulty of

choosing the structure and type of organization most appropriate, felt by social entrepreneurs,

and referred to by Weerawardena and Mort (2006).

16
 Also Zahra, Gedajlovic, Neubaum and Shulman (2009) consider the existence of

limitations of social enterprises on the use of models of organization not tested, and appropriate

governance or oversight. This also seems to reinforce the importance of having a plan that takes

into account aspects such as organization, resources, and skills, as well as mission, strategy,

planning and governance, defended by Morino and Jonas (2001), making it easier to establish

and make known the objectives, the way to achieve them, and ways to control, as considered by

Sahlman (1996: 140).

CONCLUSION

As consider Glancey and McQuaid (2000), social entrepreneurs are applying innovative ideas

to change products, services, forms of production and organizational models that, according to

Hubert (2010: 22-34), must be social "both in the means as in the purpose" and, as referred by

O'Sullivan and Dooley (2008: 33-34), producing changes that contribute to the development of

intelligent organizational structures. In turn, Xu (2011) points out that social entrepreneurship

causes changes in the form of activity of non-profit organizations in the social area.

The present work shows that social enterprises contribute to the proper functioning of

the organization itself and the work of its employees and communities, through innovation in

the training plan, in the methodology to encourage volunteers, and in the model to support

communities.

17
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